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Kuwait: oil on troubled waters

An offshore oil spill in the Neutral Zone could complicate efforts to restart Kuwaiti-Saudi production

Kuwait hasn't said how the spillage at Ras al-Zour occurred or how much oil lies on the northern waters of the Gulf and the nearby shore. But the development is an embarrassment for the emirate—in part because its energy sector has been dogged by accidents over recent years and partly because it occurred near the Khafji oilfield. This is run by Khafji Joint Operations, a joint venture comprising the Kuwait Gulf Oil Company (KGOC) and Aramco Gulf Operations Company on behalf of Saudi Arabia.

The spillage was also close to where Kuwait is building its massive al-Zour oil refinery, which will have capacity of 0.615m barrels a day.

Khafji used to produce 300,000 b/d, shared equally by the two partners. But Saudi Arabia in late 2014 announced that output was being shut for environmental reasons. This why the oil spillage in the area is embarrassing for Kuwait.

In the spring of 2015, output was also halted at the other field shared by the two countries in the Neutral Zone, onshore Wafra (which was producing 200,000 b/d). Its operators were KGOC and Saudi Chevron.

The reality is that the spat has less to do with the environment and more about the exercise of sovereignty in the shared area and management issues. Over recent months there've been frequent indications that the two sides have resolved their differences. In January this year, a senior Kuwaiti energy official said that an agreement in principle had been reached and he expected "a positive development" in a matter of weeks. Later in the year, Saudi Energy Minister Khalid al-Falih made a surprise visit to Kuwait, leading to speculation that a deal was ready to be signed. But pens have yet to be put to paper.

It's not clear what impact the oil spillage at Ras al-Zour will have on the dispute that's denying Kuwait and Saudi Arabia access to 250,000 b/d each of crude oil. Kuwait badly needs this production restored to enable it to maintain current output of 2.7m b/d and help it realise plans to raise capacity to 4m b/d. Saudi Arabia is in less of a hurry. Now, if it wants to delay the resumption of Neutral Zone output it can cite further environmental concerns.

The dispute over the region can't be isolated either from the current political crisis in the Gulf, where Kuwait is trying to mediate between Qatar on the one side, and Saudi Arabia, the UAE, Bahrain and Egypt on the other. The Saudis are ambivalent at the Kuwaiti stance, believing that the emirate should have thrown its weight behind the anti-Qatar coalition. The once calm waters of the Gulf are now troubled.

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